FTX filed for bankruptcy on 11 November 2022, one of the highest-profile crypto blowups. Traders rushed to withdraw US$6 billion from the platform in just 72 hours and rival exchange Binance abandoned a proposed rescue deal.
The US Justice Department, the Securities and Exchange Commission and the Commodity Futures Trading Commission are all now investigating how FTX handled customer funds. The founder and former Chief Executive of FTX, Sam Bankman-Fried said his business expanded too fast and failed to notice signs of trouble at the exchange. It was reported Bankman-Fried secretly transferred US$10 billion of customer funds from FTX to Alameda, the trading arm.
Source: https://www.freemalaysiatoday.com
Temasek Holdings had US$205 million invested into cryptocurrency platform FTX. The Singapore sovereign wealth fund (SWF) is said to be the second-largest outside investor on the capitalization table, with 7 million shares for its estimated investment sum.
FTX had more than five million users worldwide and traded more than 700 billion dollars’ worth of crypto last year. The key issue was bad governance. FTX had been secretly syphoning funds to Alameda Research, co-founded by FTX founder, Sam Bankman-Fried. FTX was reinvesting in much higher product categories, thus the collapse of FTX was a combination of multiple errors, including very little and unreliable documentation.
Crypto companies are deeply intertwined — they invest in one another, buy one another’s tokens and lend tokens and capital to one another — which means the collapse of FTX could topple others, and even banks.
Crypto lender BlockFi, which signed a deal to be rescued by FTX when crypto prices nose-dived over the summer, paused withdrawals last week and is preparing for a possible bankruptcy. BlockFi said it had “significant exposure” to the failed exchange and FTX’s trading arm, Alameda Research.
Genesis Global Capital, one of the largest lenders in the crypto space, suspended withdrawals and new loans Wednesday. Genesis, which may have lost as much as $175 million in the FTX collapse, is struggling to pay back creditors who have asked for their money back. A spokesperson for Genesis said that its nonlending businesses were operating without problems and that it was “shoring up the necessary liquidity” it needed to operate.
Genesis is connected to many other firms. Its parent, Digital Currency Group, owns the publication CoinDesk and the investment firm Grayscale, a substantial crypto holder, among other entities.
Regardless of politics, the collapse of FTX is likely to create new legislation. This could push cryptocurrencies to be pegged to the value of the dollar and hence oversight by current regulators. It then throws out the whole idea of being free from control of governments and central banks!
References:
FTX’s founder Bankman-Fried says he failed to see warning signs: Report, Channel News Asia, 15 November 2022
Where next for cryptocurrency after FTX collapse? www.birmingham.ac.uk
Forbes reports Temasek having invested USD205M into bankrupted crytocurrency exchange, www.theonlinecitizen.com
What is next for the FTX fallout? Erika P Rodriguez, New York Times
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